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10 Dec 2021

Five capital gains tax changes you need to know about

While CGT rates are set to stay the same, your tax bill could still be affected

At least five changes are coming to the capital gains tax system, a letter from the Treasury has revealed.

The government's plans were outlined in its response to the Office of Tax Simplification (OTS), following several reports it submitted over the last couple of years which outlined its recommendations for how inheritance tax and capital gains tax (CGT) could be made simpler.

While the government is not planning to make any of the suggested changes to inheritance tax, it has already started implementing changes for CGT. But what do they mean for your tax bill?

Here, Which? reveals the changes the government is planning to take on board - or already has - along with five more changes it is considering.

1. Extended reporting and payment deadline

In the 2021 Autumn Budget, Chancellor Rishi Sunak announced that the deadline for people to report and pay the CGT owing from the sale of a property was being immediately increased to 60 days, up from 30 days.

This was one of the recommendations the OTS had outlined in its report, saying the 30-day deadline was challenging for taxpayers.

As a result, anyone who receives a gain as a result of a property sale from 27 October 2021 onwards has 60 days to report and pay the CGT that's owed.

To do this, you must submit a residential property return and make a payment on account.

However, property sales that triggered a CGT bill between 6 April 2020 and 26 October 2021 still had to report and pay within the 30-day window.

You generally won't need to pay CGT if you're selling your main home unless you use part of it as business premises or lease part of it out; it will be due if you're selling a second home, or buy-to-let property.

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2. Being able to report and pay all in one place

The letter from the Treasury mentions HMRC's plan to introduce a 'single customer account', which is set to be a one-stop shop for all of your tax needs.

It has also accepted the OTS's recommendation that capital gains tax be included as part of this account, making it a central hub for reporting and storing all CGT data. This could be preferable to the current system, which requires gains from property to be reported in a different way to other types of capital gains.

It's not clear yet when this single customer account will be rolled out yet though - its development is a 'long term strategy', so we perhaps shouldn't expect it any time soon.

3. Better terms for separated and divorcing couples

The government says it will consult on extending the 'no gain no loss' window on separation and divorce over the next year.

The OTS had suggested this extension should be the later of either:

  • the end of the tax year at least two years after the separation took place
  • any reasonable time set for the transfer of assets, as set out by a court-approved financial agreement or its equivalent in Scotland.

An extension to the rules could be of benefit to couples who separate or get divorced, by giving more time to sort out their assets.

Currently, you're able to transfer losses to a spouse or civil partner at no gain/no loss as long as you have lived together at some point during the tax year you make the transfer.

This means that couples who separate at the start of a tax year - say, 7 April - have far more time to organise this transfer than those who separate at the end of the tax year in March.

Any assets that are transferred during the tax year following the separation are subject to complicated rules. HMRC advises couples in this position to contact their tax adviser or HMRC itself about more help with them.

4. Expansion of 'rollover relief'

The government also agreed with the OTS's suggestion to extend the current provision of rollover relief.

This relief concerns CGT charged to business owners. In its current form, CGT can be deferred when the gains made from the sale of a business asset are reinvested into a new business asset.

For instance, if someone were to sell a piece of farming machinery for a profit, they could set that profit against the cost of a new piece of farming machinery, reducing its cost.

The government has said it will consult on expanding this rule to cover the enhancing of land that's already owned, and isn't currently covered by the current rules.

5. Improved guidance

It's no secret that capital gains tax can be tricky to understand - that's why the OTS was asked to provide recommendations for improvement in the first place.

Its report identified several areas of guidance that HMRC ought to improve, and the government agrees. It says HMRC has already looked into the current guidance it provides on UK property tax returns, and an expanded version will be available soon.

We should soon see improved CGT guidance about enterprise investment schemes, lodgers, people working from home, and flat management companies - among several other topics.

What other CGT changes could we see?

In addition to the five recommendations in the OTS report that the government has accepted, there are another five that are being considered - so we could see some of these in the future, too:

  • Real-time CGT reporting: the government has said it will consider how CGT reporting can be improved as part of its 'single customer account' plans. The OTS report recommended a standalone CGT tax return that is usable by agents, rather than some taxpayers needing to fill out both a property tax return and a self-assessment tax return, but we don't know yet whether this will be introduced.
  • 'Share pools': if this OTS recommendation were to be introduced, it would mean those who hold the same share or unit in more than one investment portfolio would be treated as holding them in separate 'share pools', which would make CGT calculations simpler for investors who use more than one platform. The government says it is considering this but needs to understand the full implications of the change first.
  • Private residence relief nominations shake-up: the government says it will consider concerns flagged by the OTS, which said taxpayers should be made more aware of private residence relief rules, as well as reviewing how it operates and adding it to the single customer account - once it exists.
  • Bond market exemptions: as the bond market and tax rules have changed since CGT exemptions were introduced for corporate bonds and gilts, the government says it will consider the OTS's recommendation that corporate bond documentation should specify when it is subject to CGT. This is likely to be part of a wider review into CGT exemptions in general.
  • Enterprise exemption scheme review: the OTS recommended a review of the enterprise investment scheme rules, and the government has said it will consider doing this in the context of how income and CGT function with the relief.

To find out more about the current capital gains tax rules and allowances, see our range of CGT guides.